Retail Investors Entering Crypto: The Reason Behind Recent Extreme Price Volatility?

The extremely volatile nature of cryptocurrencies is one of the major reasons why many traditional investors are still hesitant to join the industry. 

One minute, traders are basking in the euphoria of skyrocketing peaks, and the next they are scratching their heads wondering what happened.

While there are no clear-cut indices to gouge crypto volatility, some of the reasons for it in traditional markets apply – including new developments and speculation.

But new entrants in the crypto market who have little to no experience with huge expectations could be responsible for the latest extreme price volatility in the market, according to the crypto analyst behind the Twitter handle SecretsOfCrypto. 

“Buy Crypto” Searches Hit ATH

The crypto industry has no doubt created wealth for many smart traders and long-term investors. Bitcoin and other crypto-assets have grown tremendously since the start of the year, and have attracted a new wave of retail investors.

An earlier report revealed that the total number of “buy crypto” searches on Google set a new all-time high (ATH) in January, surpassing the previous ATH that was set in early 2018.

However, many of the new investors joining the market at this point may have expectations of making huge profits in little time considering the recent performance of the asset class. As such, they throw their money without putting in much effort to understand the industry and the reality of cryptocurrency investing. 

“I’m seeing too many new entrants to this market coming in with the expectation of making quick, easy money. The reality of crypto investing is that it is not all sunshine and roses. Not everyone can handle it. Yes, you can make a lot of money, but it takes work and nerves of steel,” – SecretsOfCrypto tweeted. 

Dumb Money Entering Crypto

With such expectations, new traders often make several wrong trading decisions like entering the market at the worst possible time and subsequently selling off their digital assets in the same manner. 

Inexperienced traders often tend to focus more on selling off their crypto holdings to collect their little profit than waiting for the right time. Or even worse, they FOMO at the top and sell at the bottom. The result? They lose money. 

As ‘dumb’ money increasingly enters the market, price crashes (or surges) occur frequently, new and inexperienced traders lose their positions while smart traders and HODLers take advantage and profit from it. 

Just last week, the crypto industry suffered a severe bloodbath, the biggest crypto correction since the beginning of the year. Within a few hours, a whopping $360 billion of the total crypto market cap was wiped off the market. This also led to over $10 billion in liquidations, showing how incredibly overleveraged the market currently is and urging for even more caution.